Banks, Alcoa results boost Europe markets

CAC-40 rallies after Fitch comments; Luxury-goods stocks jump

MADRID (MarketWatch) — European stock markets ended with sharp gains on Tuesday, with investors inspired by results from Alcoa Inc., while French stocks got a lift on comments from Fitch Ratings that it doesn’t plan to downgrade the country this year.

Also boosting sentiment, China’s December trade surplus was wider than expected. The data indicated a soft rather than a hard landing for the economy, according to some analysts.

John Ventre, fund manager at Skandia Investment Group, said there’s a growing market belief that some of the risks surrounding China’s growth picture are beginning to fade. “That got people more on the bullish foot in Europe,” he said.

Atif Latif, director of trading at Guardian Stockbrokers, said the pan-European Stoxx 600 is also seeing catch-up gains Tuesday on the view it has underperformed versus some individual-country indexes.

“We still remain cautious of the short-term outlook and are adding to short positions on spikes to companies that we feel have more downside risk given the macroeconomic outlook,” Latif said in emailed comments.

Greece’s ASE Composite index (GD) fell 1.8% to 625.35 amid worries the country may need a larger second bailout. German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde will meet Tuesday evening in Berlin, and Greece will be among the topics they’ll discuss.

Banks, luxury boost

Italian stocks were outperforming the rest of Europe, with the FTSE MIB index (FTSEMIB) rising 3.1% to 14,844.80, led by Italian banks, which have sold off sharply in recent days over a capital raising plan by UniCredit SpA (UCG). That stock, which fell 30%-plus last week, rose 6%.

At a conference in London, Fitch’s Head of Global Sovereign Ratings David Riley said there was a significant chance of a downgrade for Italy if Europe cannot provide a credible financial firewall. Yields on 10-year Italian bonds (10YR_ITA) continued to climb, rising 9 basis points to 7.10%. Read more on Fitch's comments about Italy

The French CAC 40 index (PX1) jumped 2.7% to 3,210.79. A Fitch representative reiterated Tuesday the rating’s firm December statement in which it said the country would keep its triple-A credit rating in 2012 unless there is a major economic shock.

On the downside in Europe, shares of Philips Electronics NV
PHG, -0.81%
(PHIA) fell 4.7% after warning on its fourth-quarter results. The company said group sales for the period will show mid-single-digit growth from a year ago.

Shares of Software AG (SOW) tumbled more than 20% after the firm said weak U.S. sales will result in a drop in fourth-quarter revenue.

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